In California, inheritances are generally considered separate property, even when the inherited assets are acquired during marriage.
However, inherited wealth is not automatically protected from division in the event of divorce. For high-net-worth families where significant wealth is at stake, it is essential to understand how inheritances can become commingled with community property—and how inheritances can be preserved as separate property.
Is My Spouse Entitled To My Inheritance When We Get Divorced?
California is a community property state in which assets acquired during marriage are generally presumed to belong equally to both spouses. However, California Family Code §770 defines separate property to include gifts or inheritances bequeathed to an individual, along with any assets traceable to that inheritance.
However, once commingling occurs, courts may determine that some or all of the inherited asset is community property unless financial records and tracing analysis can prove otherwise.
When Does an Inheritance Become Community Property? Commingling Examples & Transmutation
Commingling may occur when:
- Inherited funds are deposited into a joint bank account
- Inheritances are used in a way that benefits the community—for example, paying for household or family expenses
- Inheritances are used to purchase jointly titled property
- Inherited funds are used to make the down payment on individually titled property, but community property assets fund mortgage payments
- Community property is used to pay down debt on refinanced inherited property
- Inherited separate assets are used to renovate or improve community property, for instance, the marital home, or community assets are used to improve inherited property
Transmutation is the legal process by which separate property is converted into community property. In California, a transmutation is valid only if it is made in writing and contains a clear, express declaration of intent by the original inheritor. Separate inherited property may be transmuted into community property when a spouse retitles it in both spouses’ names or adds the other spouse to inherited accounts in a valid written agreement.
How to Protect Your Inheritance & Reduce High-Asset Divorce Risk
Consult a lawyer with expertise in asset protection about proactive safeguards for your wealth and inheritance. Our team at Kaspar & Lugay LLP combines legal expertise with sharp business acumen and specializes in financially complex, high-net-worth divorce cases. Partner Brent Kaspar is a Certified Public Accountant (CPA) and Partner Arvin Lugay has represented some of the country’s most prestigious financial and banking institutions in high-stakes litigation.
The following practices help reduce the risk of your inheritance being treated as community property in divorce.
Keep Inherited Assets Separate From Marital Finances
- Deposit inherited money into a dedicated account maintained solely in your name
- Do not use inherited assets to cover joint expenses
- If you must use inherited funds for the community, document the transaction as a loan or contribution to be reimbursed
- Do not repay debts with inherited funds, or pledge inherited assets as collateral for personal loans, business debts, or jointly owned property
Document the Source, Timeline, and Net Worth
- Preserve documentation such as wills, probate records, transfer statements, and gift letters
- Retain a clear paper trail of the origin and date received, showing that the source of the asset was inheritance, not income
- Maintain periodic account statements showing continuity of ownership, along with independent financial records documenting the net worth of inherited assets and any reinvestments as separate property
Establish a Prenuptial or Postnuptial Agreement
Your lawyer can draft a prenuptial or postnuptial agreement that goes beyond the default standards of California law in specifying that your inheritance remains separate property regardless of how it is used.
Such agreements can reduce litigation risk by clearly defining the treatment of income generated by inherited assets, appreciation or reinvestments of inherited assets, and any property acquired with inherited funds.
Manage Investment Appreciation & Property Improvements
If inherited assets appreciate due to active effort by a spouse, for instance, managing investments or renovating inherited property, the appreciation of the inherited asset may be considered community property.
To preserve inherited assets as separate property, expenses such as maintenance, taxes, and improvements should be paid from separate funds. If your spouse will be contributing time, skill, or labor that increases the asset’s value, consult with a lawyer about structuring clear compensation or reimbursement agreements, with any compensation paid from separate property, to reduce the risk that appreciation will be deemed community.
Speak to a Lawyer About Estate Planning and Establishing a Trust
If you have received an inheritance, review your wills, trusts, beneficiary designations, and any shareholder or partnership agreements with a lawyer to ensure inherited assets are clearly identified and maintained as your separate property.
If you plan to leave an inheritance, speak to a lawyer about estate planning and safeguarding your intended beneficiary’s inheritance through a discretionary trust rather than distributing it outright. A discretionary trust keeps the inherited assets legally owned by the trust—not the beneficiary or their spouse. It gives the trustee full control over when and how distributions are made. California courts generally treat such trust assets as the beneficiary’s separate, non-divisible property in divorce proceedings. While any money actually distributed to the beneficiary must still be kept separate to remain protected, the trust principal itself is typically shielded from division.
Protect Your Property in Complex California Divorce Disputes
Disputes over inherited assets often arise in high-asset divorces or long-term marriages. Individuals transferring or receiving significant inherited wealth should work with experienced family law attorneys to properly structure and document inherited wealth to reduce the risk that it will be divided as community property in divorce.
If you have received an inheritance before or during marriage, contact Kaspar & Lugay LLP to preserve what was intended to remain yours. When disputes cannot be resolved through negotiation, our trial-proven attorneys present complex financial arguments clearly and persuasively before the court.
Call Kaspar & Lugay LLP today at 415-789-5881 or contact us online to schedule a discreet consultation with our experienced family law attorneys in San Diego, Corte Madera, Napa, and Walnut Creek.
Frequently Asked Questions
If I Receive an Inheritance During Marriage, Does It Automatically Become Community Property?
No. In California, an inheritance received during marriage is generally separate property, not community property. However, inherited assets may become community property if they are commingled with marital assets or cannot be clearly traced.
Can Inherited Assets Be Traced Separately After Commingling?
If the source of the inheritance is not properly documented, or if the respective separate and community contributions toward an asset cannot be traced, the law may treat the asset as community property. However, inherited assets may still be identified and preserved as separate property through detailed financial analysis and legal intervention—even in complex, commingled accounts. Attorneys at Kaspar & Lugay LLP partner with forensic accounting experts to analyze transaction histories, quantify separate and community contributions, and build clear and persuasive evidentiary support for separate property claims.
How Can I Protect My Inheritance From My Spouse and Keep It Separate in California?
For legal clarity and financial security when it comes to your inheritance, you should:
- Not mix community funds into inherited accounts or investments, or deposit inherited funds into joint accounts
- Retain documentation proving receipt and ownership of your inheritance
- Carefully track, document, and restrict all expenditures of inherited funds to non-marital purposes
- Not purchase jointly titled assets with inherited funds
- Not add a spouse’s name to inherited property titles or accounts without legal advice
- Review existing marital agreements and estate planning strategies with a lawyer
